On today’s Breakouts report, there are 19 stocks on the positive breakouts list (stocks with positive price momentum), and just eight securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a stock that appeared on the negative breakouts list in late June. The share price has been in a downtrend since the beginning of April. However, the share price appears to be bottoming and may soon bounce back.
The stock has a unanimous buy recommendation from nine analysts. The average one-year target price of $12, implying the share price has nearly 64 per cent upside potential over the next year. The company is flush with cash. The deployment of this cash could be the catalyst that lifts the share price higher. The stock is trading at a reasonable valuation with room for multiple expansion.
The security highlighted today is Quipt Home Medical Corp. (QIPT-X).
A brief outline on Quipt is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
The company
Quipt provides in-home monitoring and healthcare management services. The company is a provider of respiratory equipment meeting the needs of individuals who suffer from heart disease, sleep disorders, such as sleep apnea, reduced mobility, and other chronic medical conditions. The company’s has approximately 130,000 current active patients with operations across 15 U.S. states, including Florida.
The company’s product mix is: oxygen therapy (22.9 per cent), PAP therapy (21.2 per cent), sleep therapy supplies (19.1 per cent), ventilation therapy (17.1 per cent), home medical equipment (11.3 per cent), and mobility (8.4 per cent).
In terms of its payor breakdown, 39.7 per cent of the company’s revenue is from Medicare, 37.7 per cent from private insurance, 11.7 per cent from Medicaid, and 10.9 per cent from private/patient payments.
The company is dual-listed trading on the TSX Venture Exchange as well as the Nasdaq under the same ticker, QIPT. The stock just began trading on the Nasdaq at the end of May – an important milestone.
Investors may be familiar with the company under its former name, Protech Home Medical Corp. In May 2021, the company changed its name to Quipt Home Medical Corp.
Investment thesis
- Demographics. Rising demand with an aging population.
- High recurring revenue. Approximately 75 per cent of its total revenue is recurring, thereby providing strong earnings visibility.
- Cash waiting to be deployed. As at March 31, the company had roughly US$27-million in cash along with an undrawn credit facility of US$20-million. On July 14, the company completed three small acquisitions at a cost of approximately US$4.2-million, providing annual revenue of roughly US$5.5-million. Anticipate additional strategic acquisitions will be announced in the months ahead.
- Exceeding industry growth. The industry is growing roughly between 5 per cent and 6 per cent annually. Last quarter, the company’s organic, or internal, growth was 11 per cent.
- Revenue growth and margin expansion. Management’s goal is to reach a revenue run rate of $135-million by the end of calendar 2021. Management targets over $250-million in revenue with an earnings before interest, taxes, depreciation, and amortization (EBITDA) margin exceeding 25 per cent over the next three to five years. Management aims to be a leading U.S. respiratory care provider.
- Stock trades at a reasonable valuation.
- Potential catalysts: 1) larger acquisitions announced providing positive earnings revisions; 2) execution – management achieving its growth targets; and 3) becoming profitable. The consensus earnings per share estimate is 33 US cents in 2022, up from an earnings per share loss of 24 US cents forecast for 2021.
- Key risks to be aware of: 1) low liquidity (i.e. few shares traded); 2) acquisition integration risks.
Quarterly earnings
After the close on May 31, the company reported its second-quarter fiscal 2021 financial results.
Revenue came in at US$24.2-million, up 36 per cent year-over-year, and ahead of the consensus estimate of US$23.3-million. Organic growth was 11 per cent with sleep oxygen and ventilators the main growth drivers. Adjusted EBITDA was US$5.4-million, exceeding the consensus estimate of US$5.2-million, and up 28 per cent year-over-year. In the second quarter, the company completed over 83,000 setups, up 31 per cent year-over-year.
On the conference call, management indicated that they had roughly 40 sales reps and plan to increase that number by between 20 per cent and 40 per cent (to approximately 48 to 56 sales reps) by year-end.
Dividend policy
The company does not pay its shareholders a dividend. Management is focused on retaining capital to fund its growth.
Analysts’ recommendations
The stock has a unanimous buy recommendation from nine analysts.
The firms providing research coverage on the company are: Beacon Securities, Canaccord Genuity, Colliers Securities, Echelon Wealth Partners, iA Capital Markets, Leede Jones Gable, M Partners, Raymond James, and Stifel Canada.
Revised recommendations
Earlier this month, two analysts revised their target prices.
- Beacon Securities’ Doug Cooper to $13.40 from $13.
- Raymond James’ Rahul Sarugaser to US$9 from US$10.
Financial forecasts
The company’s fiscal year-end is Sept. 30.
According to Bloomberg, the consensus revenue estimates are US$101.6-million in 2021, and forecast to rise to US$127-million in 2022. The Street is forecasting EBITDA of US$22.9-million in 2021, and forecast to climb to US$30-million in 2022.
Earnings expectations have been rising. For instance, four months ago, the Street was forecasting revenue of US$89-million for 2021 and US$106-million for 2022. The consensus EBITDA estimates were US$20.2-million for 2021 and US$24.7-million for 2022.
Valuation
According to Refinitiv, the stock is trading at an enterprise value-to-EBITDA multiple of 6.8 times the 2022 consensus estimate.
The average one-year target price is $12.02, implying the share price may appreciate 64 per cent over the next 12 months.
Target prices range from a low of $10 (from Canaccord’s Tania Gonsalves) to a high of $13.40 (from Beacon Securities’ Doug Cooper).
For comparison purposes, industry peer Viemed Healthcare Inc. (VMD-T) is trading at an enterprise value-to-EBITDA multiple of 7.7 times the 2022 consensus estimate, according to Refinitiv.
Insider transaction activity
Year-to-date, there has not been any trading activity in the public market reported by insiders.
Chart watch
Year-to-date, the share price is up 14 per cent. However, the share price used to be much higher.
The share price put in a double top earlier this year and has been in a downtrend since the beginning of the second quarter, making lower highs and lower lows. Right now, the stock’s chart is technically weak. That being said, the share price appears to be bottoming.
In terms of key resistance and support levels, the stock price has initial overhead resistance around $8. There is a major ceiling of resistance around $10, where the share price peaked twice at earlier this year (closed at $10.04 on Feb. 10, and at $9.80 on April 1). Looking at the downside, there is strong technical support between $6.75 and $7.
This small-cap stock is thinly traded, which can increase price volatility.
Please note that this report is not an investment recommendation. The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.
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Jennifer Dowty